"Crisis, cash, repeat" is no way to run public services – the Treasury must explain its spending decisions

Written by Emily Andrews, the Institute for Government on 28 February 2017 in Opinion

Opinion

Without publishing the rationale for its spending decisions, the government risks being bounced from crisis to crisis, unable to restore the public finances or ensure quality

After initial success in improving public sector efficiency after the austerity drive of 2010, the government is now struggling to implement the reductions handed down in the 2015 Spending Review. The chancellor must act quickly to counteract the wishful thinking which overlays public spending decisions, and prove that his spending decisions are realistic enough to withstand independent scrutiny.

That is the key message of our new report, which uses data from across government to shed light on the heated, but opaque, debate about whether our public services really are at breaking point or whether there is room for more efficiency.

Performance Tracker is a data-driven assessment of the performance of government, produced by the Institute for Government in partnership with the Chartered Institute of Public Finance and Accountancy. Our ambitions for this work spread across government’s activity, but in this first edition we’ve focused on five crucial public services: hospitals, adult social care, schools, prisons and police.

In 2010, and again in 2015, the government stated that it would control spending on public services – but not at any cost. Both the Coalition and the Conservative governments also committed to maintaining – or even expanding and improving – the scope and quality of those services. These are the government’s stated ambitions, and these are the criteria against which we judged their ‘performance’.

In these terms, the 2010 Spending Review was a success – at least initially. Violence in prisons remained level up to 2013, despite an 18% reduction in spending and a 14% reduction in front line staff. In schools and hospitals, where spending growth was constrained, services absorbed rising pupil and patient numbers respectively. And despite sharp reductions in the number officers on the ground, public confidence in the police service grew.

"Since 2015, pressures in the more troubled services have only continued to build, and the government has twice been forced into emergency action"

But signs of pressure began to appear in the run-up to 2015. Initially viewed as a limited period of pain, the 2010 spending reductions were not undertaken with long-term spending constraint in mind. Politically and organisationally challenging reforms – demand management, better use of IT, service integration – were avoided, or failed to achieve the desired outcomes. Instead, belt-tightening measures, essentially staff reductions and wage control, took the strain.

By around 2013/14, the effects of short-term tactics to control spending were beginning to bite. People began routinely waiting longer for critical hospital services such as accident and emergency and cancer treatments. While clinical standards within hospitals were holding up, this was being achieved through record deficits. Since 2014, delayed transfers of care from hospital have risen by 40%, and prison assaults against staff have risen by 60%.

These pressures were clearly visible in the data in the run-up to the 2015 Spending Review. But there is little sign that the settlements handed to departments were fundamentally driven by an assessment of how services had fared after 2010. The Ministry of Justice received a 15% real-terms cut and there was essentially no increase for adult social care, despite continued growth in demand. The NHS received extra real-terms funding, front-loaded into 2016/17, but much of this was absorbed in meeting the hospital deficits being run in 2015/16.

In schools and the police, there were fewer immediate pressures evident in the data in the run-up to the 2015 Spending Review: pupil attainment was holding up, as was public confidence in the police. Yet in both of these areas spending was protected, with police and schools’ budgets flat in real terms.

Since then, the pressures in the more troubled services have only continued to build, and the government has twice been forced into emergency action. At the 2016 Autumn Statement, chancellor Phillip Hammond announced funding for an extra 2,500 prisons officers, effectively reversing two years of cuts and returning staffing to 2014 levels. When the chancellor faced widespread criticism for his silence on social care in that same Autumn Statement, communities secretary Sajid Javid announced that local authorities would be allowed to bring forward council tax increases to plug their social care funding gaps.

This cycle – of crisis, cash, repeat – is both inefficient and unsustainable. If it is going to manage continued financial constraint into the next Parliament, and genuinely embed efficiency in public services, government must tackle the wishful thinking which underpinned those 2015 Spending Review settlements. The time has come for government to publish the assumptions which underpin its spending decisions and subject them to independent scrutiny, potentially through an ‘OBR for public spending’.

Without such action, the government risks being bounced from crisis to crisis, unable to get a grip on spending or quality in public services. If unjustified optimism is allowed to reign, within the next two years it could face a disastrous combination of failing public services and breached spending controls against a background of deeply contentious Brexit negotiations.

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